On 16 August 2018, the Inspector-General of Taxation (IGT) released his report into the ATO’s verification of GST refunds (before releasing the funds to the taxpayer).

The IGT’s review into Goods and Services Tax (GST) refunds arose from concerns raised through the IGT’s complaints handling service and during consultation, to develop his 2017 work program.

These concerns included:

  • the accuracy of the ATO’s risk assessment tools,
  • its engagement with taxpayers; and
  • its efforts to minimise adverse impacts on affected taxpayers.

The IGT has reviewed the end-to-end process involved in refund verification including from initial case selection through to the review and audit activities.

Overall, the IGT has found that the ATO’s administration of GST refunds operated efficiently with the vast majority of refunds released without being stopped for verification. Moreover, where refunds are stopped, the majority were processed and released within 14 or 28 days.

Some opportunities for improvement have been identified including:

  • processes to enhance the ATO’s automated risk assessment tools which have been achieving a strike rate of only 26.7 per cent (approximately 1 in 4 cases) and which the ATO has acknowledged to be no better than random selection.
  • Furthermore, the IGT has identified that the ATO can streamline its instructions and guidance to staff, when interacting with taxpayers, taking into account their circumstances and the adverse financial impacts that delayed refunds can have on their cash flow.

The IGT made 5 recommendations (comprising 16 parts) to the ATO which were aimed at:

  1. developing a framework for continuous improvement of its automated risk assessment tools;
  2. streamlining its guidance to staff and implementing tools to assist them in complying with their obligations under section 8AAZLGA of the Taxation Administration Act 1953;
  3. enhancing its information requests to taxpayers and providing a channel for pre-emptive provision of such information;
  4. improving its notification of when taxpayers’ objection rights to the retention of refunds has been triggered and assisting them to lodge such objections effectively; and
  5. raising awareness of staff and taxpayers about financial hardship issues, appropriately considering them and enabling automated partial release of refunds.

The ATO has agreed in full or in part with all 5 recommendations (11 out of 16 parts).

The ATO was investigating serious fraud in the ‘precious metals’ industry, it withheld GST refunds for prolonged periods, for this reason. The IGT has acknowledged the seriousness of these fraud risks but has also noted the prolonged timeframes to finalise such cases.

  • The IGT has also recommended to the Government to consider amending the relevant provision to allow the ATO to effectively investigate and address risks of fraud the seriousness of which has been established.

[IGT website: Report; LTN 157, 16/8/18; KPMG Daily Tax News, 16.8.18; Sievers, 16/8/18; Tax Month – August 2018]

 

Comprehension questions (answers available)

  1. Was this a report on the IGT’s investigation into the ATO’s retention of GST refunds, whilst investigating their validity?
  2. Did this partly arise out of the IGT’s ‘complaints’ function (which it acquired, when it took over the Ombudsman’s role, for tax)?
  3. Does the ATO have an ‘automated’ risk assessment process, for selecting refunds it will withhold pending investigation?
  4. Did the IGT find that this automated system was working well enough and didn’t need improvement?
  5. Can taxpayers object to the ATO withholding GST refunds?
  6. Did taxpayers know, well enough, when their right to object had arisen?
  7. Is financial hardship, from refunds being delayed, a problem?
  8. Were ATO staff handling this well enough?

[Answers:1.yes;2.yes;3.yes;

4.no(at1in4itWasLittleBetterThanRandomAndRecommendedAcontinuousImprovementProcess);

5.yes;6.no(RecommendationToAdviseWhenObjectionRightArises);7.yes;

8.no(RecommendationToRaiseATOstaff’sAwareness&Communicate)

 

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